What about Bitcoin and consumer protection?

One of the most common problems that people mention about Bitcoin is the lack of consumer protection. All Bitcoin transactions are irrevocable and if you don’t get the product you purchased you have no recourse to get your money back. Some see this as a positive as Bitcoin avoids fees that are charged by credit card companies by not having an institution to intermediate chargebacks. Hopefully, before your purchase, you have formed a relationship with the merchant so you’re chances of fraud is low but these cases do happen and Bitcoin hasn’t been able to help those customer a lot.

Until now. Bitcoin has found a solution to its new age problem. Payments will now go through escrow and will only be released once it’s confirmed by the customer that they have received the product. This, however, is not just a straight forward escrow account, Bitcoin is doing a multisignature transaction. What does that mean? Instead of the customer sending money to an escrow agent, it gets sent to two of three multisignature addresses that are created using the public keys of the customer, the merchant and the escrow agent. So, basically, the funds from the customers address can only be spent when two of the three parties cooperate.

So it works like this –
Jack wants to send money to Jane through an escrow agent for an iPhone 6. Jack searches the website Bitrated choosing “Browse arbitrators” and finds an escrow agent named Jill. He clicks to start the transaction and includes what the transaction conditions are – for example, he says that for 1.5 BTC, Jane will send him an iPhone, unused and undamaged and he clicks to begin the process. Jack is provided with a link to send Jane and when Jane receives it, she opens up the link and accepts.

Bitrated then creates the three multisignature addresses between Jack, Jane and Jill (even though Jill has not participated yet, Jack has Jill’s public key so the address can be made). Jack sends the money and Jane will see through a confirmation that the money is in escrow. When Jack receives the phone and is ready to release the money, he just enters Jane’s address and how much should be released. Jane can see that money is pending and she can then click on the pending transaction to review it. Once she sees it’s the correct amount, she can approve it and the transaction is complete.

If there was a dispute over the transaction, either one of them could click a link on the page to contact Jane to mediate the dispute. She gathers information from both of them and then makes a decision based on the information who is right in the dispute and her decision settles the matter.

There are several advantages to this system. Most transactions will not need a mediator so there won’t be a fee that is incurred. If the mediator does get involved, there will probably be a fee but it is paid by the people using the service, it’s not spread out across all the users of the system. If Jack and Jill decided that Jane is doing a bad job, they can together decide to use a different mediator. And the mediator cannot take the money herself since she needs the signature of one of the other parties to do this.

The security of the multisignature system is well thought out as Bitrated does not keep any of the data on its own server. All the information of the escrow transactions are kept in the user’s URL. The only drawback is the fact that the escrow agents are unregulated so you’re really not sure how honest they are. It would help if Bitrated put in a system to vet the agents, especially for new users who are not familiar with the system.

Bitrated needs to make its next step to include e-commerce into this setup. As it stands, the service is only for person-to-person money transfers. Having a mediator available for online store transactions would give customers the confidence in their transaction and feel like they have someone to help them if the product they purchased does not arrive. If this system becomes a standard in the Bitcoin world, it could even transfer as a lower cost alternative for merchants using credit cards as they would never have to pay a fee as long as they delivered the products that were purchased.

Another area Bitcoin is improving in customer protection is allowing businesses to do a public audit of its assets which permits a business to prove the use of its Bitcoin assets without providing any private information about its customers. This allows customers to do their own research on companies that they will be dealing with.

Bitcoin is making strides to make its currency and its use more secure to encourage growth and confidence. In order to get rid of a lot of myths about Bitcoin and its uses, these changes will change the Bitcoin’s reputation and the world’s trust in its service.